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Report No. 67

12.21. Later English Acts.-

The words underlined above do not occur in later English Acts; but, it has been held that there was no intention to make a change1

1. (a) Liquidators v. C.I.R., (1881) 18 Scott LR 240; (b) Wayne v. C.I.R., (1900) 1 QB 172.

12.22. History of section 24.-

The history of the section in our Act was discussed in a Calcutta case.1 Under section 34(b) of the Stamp Act, 1869 (18 of 1869), where any property was sold and conveyed subject to any mortgage or bond or other debt or to any gross or entire sum or money, such debt or sum was deemed the consideration money or part of the consideration money as the case may be, in respect whereof duty should be paid, notwithstanding that the purchaser was not or did not become personally liable for such debt or sum, or did not agree to pay the same or indemnity the seller against the same. In the Stamp Act of 1879, in re-enacting this section, the last portion (above referred to) was omitted. This resulted in a conflict of decisions. When property subject to a mortgage or debt was sold, the High Courts of Calcutta2 Madras3 and Allahabad4 held that ad valorem duty was payable in respect of such sum or debt in addition, only when the purchaser bound himself personally to pay the same or indemnify the vendor against the same. But the Bombay High Court held,5 that in all cases stamp duty was payable on the total of the purchase money and the mortgage debt. We shall revert to this controversy later.6

1. U.K. Janardan Rao v. Secretary of State, AIR 1931 Cal 193 (Rankin, C.J.).

2. Reference from the Board of Revenue (in re:), 1884 ILR 10 Cal 92.

3. Reference from D.J. South Malabar under section 49, General Stamp Act in case No. 1/1881, 1882 ILR 5 Mad 18 (FB) and reference from Board of Revenue in case No. 3/1884 under section 46, Indian Stamp Act, 1879; 1884 ILR 7 Mad 421 (FB).

4. Jwala Prasad v. Rain Narain, 1882 ILR 15 All 107.

5. (a) Shah Naginchand Jayachand v. Nalkara Nathwa Chagla, 1881 ILR 5 Born 470. (b)Meer Kaisur Khan v. Ebrahim Khan, 1891 ILR 15 Born 532.

6. See "Comment on the explanation", infra.

12.23. Question of interest not of importance.-

Another difficulty arose from the language of section 23. According to some Bombay decisions, a transferee of a property subject to mortgage need not pay duty on the interest due on the mortgage, through, he would have to pay such interest before redeeming the property. But now the express language of the Explanation to section 24, makes the mortgage debt or money charged, together with the interest due upon it, as part of the consideration for sale.

12.24. Relevance of distinction between sale subject to encumbrance and other sale.-

As to sale subject to encumbrances and sale not so subject, the question may be raised whether this distinction, even if relevant for the purpose of the law of transfer of property,1 has any relevance in regard to the charge of duty under section 24, Explanation. The answer is that the distinction is relevant, because the Explanation is intended to apply only where the seller purports to sell the equity of redemption. It is only where such a sale is made-a sale subject to encumbrances-that the need for adding the amount due to the mortgages can arise. In other cases, the purchaser would have calculated the price on the unincumbered value. In Mortimore v. I.R.C., (1864) 33 LJ Exch 263 (266): 133 RR 815: 159 ER 347. Baron Martin, explaining the provision then in force in England, put the matter thus:

"The scope and subject of the enactment2 is clear, namely, that upon every purchase, ad valorem duty shall be paid on the entire consideration which either directly or indirectly represents the value of the free and unincumbered corpus of the subject-matter of the sale."

In the case where the sale is not subject to incumbrances, the purchaser would already have paid the full value, and the need for applying the enactment does not remain.

1. Section 55(1) (g), Transfer of Property Act.

2. Stamp Act, 1815 (English).

12.25. Possibility of double charge.-

If the Explanation to section 24 is regarded as applicable even where the sale is free of incumbrances, there will be double charge of duty. A sells to B certain property, without stating the incumbrances. Since B was not told of any incumbrances, he would, one may assume, have paid to A the normal price as for property not encumbered. In such cases, the "property" is subject to mortgage, though the sale is not. Should the Explanation apply? Should it be reasonable to apply it?

The mortgage money is added (for stamp duty), because, indirectly, the seller is benefited by the fact that discharge of the incumbrance is now at the cost of the purchaser.

12.26. In construing the proviso to the Explanation, Mclood, C.J.1 observed in the Bombay case:

"The proviso belongs to and must be read with the Explanation which is to the effect that if a mortgagor sells the equity of redemption, the amount due by him to the mortgagee for principal and interest shall be deemed to be part of the consideration for the sale."2

As Rankin C.J. observed in a Calcutta case:3

"The first question which can be put is whether the phrase "subject to a mortgage or other incumbrance", qualifies the word "property" or qualifies the word "sale."

If the former is the correct meaning, then property which is, in fact, subject to a mortgage will, if it is sold, attract the consequences set forth in the Explanation, whether or not the property is sold on the terms that the vendor is to clear off the mortgage and give to the purchaser a clean title. In Waman Martand v. Commissioner, Central Division, AIR 1924 Born 524., this question was raised and it was held that the clause "subject to a mortgage or other incumbrance" governs "sale of property" and not "property", that property may be subject to a charge and yet the sale may not be subject to it and that where a bargain between the vendor and the purchaser is that the vendor "will make a good title free from all incumbrances", the Explanation does not apply. I am clearly of opinion that this is the correct view. To begin with, an instrument is to be stamped according to the nature of the bargain. That is the general principle in the light of which a question of this character must be approached.

The language of the main clause shows that the question is whether the property is transferred subject to the payment of money. The Explanation is in my judgment entirely consistent with the language of the main clause. If property is subject to a mortgage but the vendor, in return for the purchase price, is to give a clear title free from all incumbrances, the Explanation does not apply.4 Nor does Illustration 2 apply, for, the case there put is clearly not a sale free from the incumbrance. It is dangerous to rest one's view of a clause in the Stamp Act upon reasons of justice or fair play. Still, it would require very clear words to induce one to think that where the purchase price is given as the full value of the property and the vendor as part of the considerations therefor undertakes to clear off all incumbrances the amount of the incumbrance was intended to be added to the whole value of the property and stamp duty assessed upon the same thing twice over."

1. Frank Portolock (in re:), 1926 ILR 50 Born 640: AIR 1926 Born 542 (Mcleod, C.J.).

2. In the judgment, by slip the word "mortgage" is used in place of "sale".

3. Janardhan Rao v. Secretary of State, AIR 1931 Cal 193 (195).

4. Emphasis supplied.

12.27. Criticism by Fawcett J.- Fawcett J. observed1 in the Bombay case:-

"The Explanation and Illustration (2) to section 24 of the Indian Stamp Act have been rather loosely drafted. But I am satisfied that the intention is that the Explanation should only cover cases where the purchaser undertakes to pay the mortgage debt."

We shall refer to the view of Marten J. later.2

1. Waman Martand Haslerae v. Commissioner, Central Division., AIR 1924 Bom 524 (526, 527) (Fawcett, J.).

2. Para. 12.33, infra.

12.28. Agreement relieving the vendor-whether required.-

Opinions can vary as to the ratio decidendi of the above Bombay case. The decision could be construed as resting solely on the ground that though the property was subject to the charge, the vendor undertook to clear off the incumbrance and to perfect the title of the vendee free from all encumbrances.1 The opinion expressed by Marten J., however goes beyond that.2 According to him, the Explanation must be confined to cases where, as part of the consideration which the vendor gets for the transfer, the Vendor is to be relieved, expressly or impliedly from the burden of the mortgage as between himself and the purchaser.

1. See Shah Ag. C.J.'s, Judgment.

2. See para. 12.33, infra.

12.28A. If the latter proposition is to be regarded as the basis of the judgment in the Bombay case, then it must be noted that it has not been accepted by the Calcutta High Court,1 where Rankin C.J. observed, (with reference to the Bombay case)-

"No such qualification is to be found in the Explanation itself or in the illustration which is given by the legislature to throw light upon its meaning." In the Calcutta case, the vendor had purchased the property in a court auction, and sold it to the vendee for Rs. 1,000. There was a mortgage on the property, on which a suit had been instituted by the mortgagee against the mortgagor. A sum of Rs. 25,636 was outstanding on that mortgage. The fact of the mortgage suit having been instituted was mentioned in the sale deed. The instrument was stamped as a conveyance for Rs. 1,000 only. It was held, that as the property was sold subject to the encumbrance, the conveyance was liable to stamp duty on Rs. 1,000 plus the encumbrance.

Examining the meaning of the phrase "subject to a mortgage or other incumbrance", the court held that the phrase governs the words "sale of property", and not the word "property". Where the sale is not subject tho a mortgage (though the property concerned may be so subject), the Explanation has no application. Thus, if the property is subject to a mortgage, but the vendor, in return for the purchase-money, is to give a clear title free from all encumbrances, then the Explanation does not apply. The unpaid mortgage money in the case of a sale subject to a mortgage, is to be deemed to be part of the consideration for the sale, not because it is part of such consideration, but because the legislature is determined to tax it. Consequently, an enquiry into the question whether the mortgage amount, in fact, proved part of the consideration, is wholly irrelevant.

1. U.K. Janardan Rao v. Secretary of State, AIR 1931 Cal 193 (201) (Rankin, C.J.).

12.29. In an Allahabad case,1' the High Court maintained that where an immovable property, which is encumbered by a charge or a mortgage, is sold but not subject to the incumbrance, then the amount of money constituting the charge or mortgage need not be added to the consideration mentioned in the conveyance as the value of the property sold. The words of section 24 beginning with "subject either" and ending with "property or not", apply to the word "transferred", and not to the word "property".

1. Sidhnath Mehrotra v. Board of Revenue, AIR 1959 All 655, affirmed in Board of Revenue v. Sidhnath, AIR 1965 SC 1092.

12.30. The Supreme Court,1 in an appeal from the Allahabad case, held the view that the phrase "subject to a mortgage or other encumbrance" qualifies the word "sale", and not the word "property". If the mortgaged property is sold subject to a mortgage, then and then only the Explanation applies; the phrase does not mean that whenever mortgaged property is sold, then Explanation is to apply. It is plain from the Explanation that it is only the unpaid mortgage money that is deemed to be part of the consideration.2

1. Board of Revenue, Uttar Pradesh v. Sidhnath Mehrotra, AIR 1965 SC 1092.

2. See also Collector v. Deepak Textile Industries, AIR 1966 Guj 227 (FB).

12.31. While the judgment of the Supreme Court settles, in general, the meaning of the words "subject to", it does not concern itself with the major controversy, namely, is it necessary that the vendor should have been relieved of his obligation?

12.32. It appears that the difficulty on the above point seems to survive even now, and the Explanation to section 24 should be made more specific than at present. The question that remains unsettled is-Is the Explanation applicable only where the purchaser undertakes to pay the incumbrance, or is it wide enough to cover other cases where the incumbrance is outstanding? We do not think that the applicability of the Explanation should be limited to cases where the purchaser undertakes to redeem the incumbrance expressly or by implication. Once it is proved that the incumbrance is outstanding, its value ought to be added to the consideration paid, because the vendor has benefited by the sale being subject to incumbrance.

12.33. In the Bombay case,1 Marten J. observed:-

"This Explanation must be read along with the main portion of section 24, which refers, in my opinion, to the consideration payable to or moving towards the vendor2 and not to that payable by or moving from him I think, therefore, that the Explanation on its true construction must be confined to cases where, as part of the consideration which the vendor gets for his transfer, he is to be relieved expressly or impliedly from the burden of a mortgage as between himself and the purchaser."

The question to be considered is whether this is the correct view.

1. Waman Martand v. Commissioner, Central Division, AIR 1924 Bom 524 (526)

2. Emphasis suplied.

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